Morgan Stanley analyst Richard Berner slashed the bank's second-half growth estimate by one percent but said the slowdown will end next year.
"This downgrade from above-trend to below-trend growth has important implications for our forecasts of the unemployment rate, inflation and monetary policy," the Business Insider reports that Berner wrote in a note to investors.
In that note, he cut the bank’s GDP forecast from 3-3.5 percent to 2-2.5 percent.
"We don't believe that this slowdown will last beyond 2H, much less morph into a downturn. Policymakers may take action, household balance sheets continue to improve, and we still think that net exports will add to growth."
Berner says the main culprit for economic weakness is less-than-expected support from global growth. But other factors – temporary loss of stimulus measures and hesitation resulting from policy uncertainty – likely also played a role.
“Slack in the economy will likely widen slightly in this new outlook, implying a slower rise in inflation,” Berner says. “The unemployment and housing vacancy rates may rise. So, while core inflation has bottomed, it may linger below the Fed’s comfort zone for longer.”
According to the latest estimates released by Eurostat, the statistics office of the European Union, gross domestic product increased by 1.0 percent in parts of the Eurozone during the second quarter of 2010, outpacing both the United States and Japan.
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